MENU

Here’s the secret weapon behind these 3 beaten down stocks

Sometimes when companies endure a sustained market drop, it’s hard to see any light at the end of the tunnel. Momentum is a powerful force and management usually require time and resources to break the downward spiral.

The following three stocks have experienced share price declines over the last year, but they all have one secret weapon in common:

 Company name % drop from 52 week high Cash & short term investments* Total liabilities*
Servcorp Limited (ASX: SRV) 33% $122m $116m
Perpetual Limited (ASX: PPT) 31% $556m $496m
Nanosonics Ltd. (ASX: NAN) 12% $67m $12m

* All cash and total liabilities balances above are as at the company’s last reporting date. 

As you can see, these companies all have significant amounts of cash and short term investments that are higher than total liabilities.

This in an important metric I usually check particularly when a company’s share price has declined significantly for the following reasons:

  • Low debt levels typically result in lower ongoing obligations for the company and more free cash flow
  • Cash gives management enough runaway to implement new strategies and grow the business
  • The company’s fate is not in the hands of external financiers who may act to significantly dilute existing shareholders

Risks

Whilst having low levels of debt relative to cash is desirable, it should not be the only consideration, particularly when the market is already losing confidence in the company.

Investors should always consider the prospects of the business looking ahead as well as management’s ability to use that cash effectively to grow shareholder value.

Foolish Takeaway

Given Servcorp’s challenges with strong competition in the US and the recent change of leadership at Perpetual, my preferred pick from the above list would be Nanosonics. This company has a huge market opportunity with its trophon technology.

Mind you I think this emerging investment opportunity could be even more exciting than Nanosonics.

The Rocket Fuel of the AI Boom

One of the world’s richest people is sounding the alarm on what could be a trillion-dollar technology.

Everyone is talking about the artificial intelligence revolution.

Harvard Business Review calls it, “the most important general-purpose technology of our era.”

One Google Insider predicts AI, “will be as transformative as the discovery of electricity.” And it already is transforming industry after industry.

After all we have been hearing about AI for years…but it never really lived up to the hype…so what’s finally unlocked this huge tidal wave of innovation?

Click here to learn more!

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevon on Twitter @KevinGandiya.

The Motley Fool Australia owns shares of and has recommended Nanosonics Limited. The Motley Fool Australia has recommended Servcorp Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!